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23 May 2018

Apple Music is gaining on Spotify, but must steer clear of antitrust suits

Everyone was getting excited this week that Apple seemed to be growing its Music service by around 2m paying subscribers a month.

That figure was extrapolated from comments by Apple CEO Tim Cook, taken from a preview of a Bloomberg TV interview on the David Rubenstein Show, which will go out in June.

Cook revealed that Apple Music’s streaming service now has more than 50m users – either paid or on free trials. He had previously said that Apple has 8m trials at any point. That puts the paying number on 42m just one month after Apple said on an earnings call that it had 40m users – hence the extrapolated run rate. Apple Insider felt this was closer to 4m a month, using Fanboy math.

Either way, Apple seems to be on track to depose Spotify, eventually, as the leading streaming music service, either two years from now or sooner, depending upon whose numbers you accept.

We have to remember that, for every Apple streaming customer, there is less likelihood of iTunes revenue, and that realistically Apple should expect to get something like the same market share it occupies in smartphone market – around 35%, because it can tightly integrate the service onto its phones, in a way that ever Spotify cannot expect to.

It should go way beyond this figure as it markets the service to other Apple customers – Mac users, Apple TV users, where integration with say Siri can also be offered. Not to mention a charm offensive to all Android devices which have yet to take up a streaming service. It should realistically slow down once it saturates the Apple fan base and most of the subscribers are on non-apple devices – we shall see.

And that’s where we start to get into trouble. Apple has a key advantage where its own phones are concerned and if it leverages that advantage –if it offers features of iOS to its own service that others cannot use – it would be using dominance in smartphones to dominate in music streaming. No-one so far has mentioned an antitrust suit, and in the US, they tend to be highly ineffective – but in Europe there may well be one in the wings, especially as Spotify is a European company.

Already Apple has been investigated in Europe for the contracts that it imposes on MNOs, under which they are forced to advertise the iPhone closer to the home page of their website than other phones, and on advantageous financial terms.

As long as Apple takes no liberties with streaming music it should simply breeze past Spotify, as both of them squeeze out all remaining rivals. But if it crosses any antitrust lines, by over-supporting its service , then it may find itself in legal hot water again. In much the same way, if it decides to venture into the Netflix video content world, it could easily find itself crossing the same lines once again.